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Wiley FINRA Series 6 Exam Review 2017: The Investment Company and Variable Contracts Products Representative Examination

ISBN: 978-1-119-40001-1
384 pages
March 2017
Wiley FINRA Series 6 Exam Review 2017: The Investment Company and Variable Contracts Products Representative Examination (1119400015) cover image

Description

The go-to guide to acing the Series 6 Exam!

Passing the Series 6 Exam qualifies an individual to function as an agent of a broker dealer and allows the limited representative to transact business in mutual funds (closed-end funds on the initial offering only), unit investment trusts, variable annuities, and variable life insurance products. In addition to passing the Series 6 Exam, an agent may be required to pass a state life insurance exam to transact business in variable contracts.

Created by the experts at The Securities Institute of America, Inc., Wiley Series 6 Exam Review 2017 arms you with what you need to score high on this tough 100-question test. Designed to let you build and fine-tune your knowledge of all areas covered in the exam and to guarantee that you're prepared mentally and strategically to take the test, it provides:

  • Dozens of examples
  • Assorted practice questions for each subject area covered in the exam
  • Priceless test-taking tips and strategies
  • Helpful hints on how to study for the test, manage stress, and stay focused

Wiley Series 6 Exam Review 2017 is your ticket to passing the Series 6 test on the first try—with flying colors!

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Table of Contents

About the Series 6 Exam xv

About This Book xix

About the Test Bank xxi

About the Securities Institute of America xxiii

Chapter 1 Equity Securities 1

What Is a Security? 1

Equity = Stock 2

Common Stock 2

Preferred Stock 12

Options 20

Calls 20

Puts 20

Bullish vs. Bearish 21

Characteristics of All Options 21

Exercise Price 22

Buyer vs. Seller 22

Possible Outcomes for an Option 22

Currency Risks 23

Functions of the Custodian Bank Issuing ADRs 23

Real Estate Investment Trusts (REITs) 23

Issuing Corporate Securities 24

Types of Underwriting Commitments 24

Types of Offerings 25

Awarding the Issue 26

The Underwriting Syndicate 26

Selling Group 26

Securities Markets 27

The Exchanges 28

Over the Counter/Nasdaq 28

Market Makers 29

Third Market 29

Fourth Market 29

Broker vs. Dealer 29

Pretest 31

Chapter 2 Debt Securities 35

Corporate Bonds 35

Types of Bond Issuance 36

Bond Certificate 37

Bond Pricing 37

Corporate Bond Pricing 38

Bond Yields 38

Bond Maturities 41

Types of Corporate Bonds 42

Converting Bonds into Common Stock 45

Advantages of Issuing Convertible Bonds 46

Disadvantages of Issuing Convertible Bonds 46

Convertible Bonds and Stock Splits 46

The Trust Indenture Act of 1939 47

Bond Indenture 47

Ratings Considerations 47

Retiring Corporate Bonds 48

Collateralized Mortgage Obligation (CMO) 50

CMOs and Interest Rates 51

Types of CMOs 51

Private-Label CMOs 53

Exchange-Traded Notes (ETNs) 53

Pretest 55

Chapter 3 Government and Municipal Securities 59

Series EE Bonds 59

Series HH Bonds 60

Treasury Bills, Notes, and Bonds 60

Treasury Bond and Note Pricing 61

Treasury Strips 62

Treasury Receipts 62

Treasury Inflation-Protected Securities (TIPS) 63

Agency Issues 63

Government National Mortgage Association (GNMA) 63

Federal National Mortgage Association (FNMA) 64

Federal Home Loan Mortgage Corporation (FHLMC) 64

Federal Farm Credit System (FFCS) 64

Municipal Bonds 65

Legal Opinion 66

Municipal Bond Insurance 66

Tax Equivalent Yield 67

Purchasing a Municipal Bond Issued in the State in Which the Investor Resides 67

Triple Tax-Free 68

Capital Gains 68

Pretest 69

Chapter 4 The Money Market 71

Money Market Instruments 71

Corporate Money Market Instruments 71

Government Money Market Instruments 73

Municipal Money Market Instruments 74

International Money Market Instruments 74

Interest Rates 74

Pretest 77

Chapter 5 Economic Fundamentals 79

Gross Domestic Product (GDP) 79

Recession 81

Depression 81

Economic Indicators 81

Economic Policy 83

Tools of The Federal Reserve Board 83

Fiscal Policy 86

Consumer Price Index (CPI) 87

Inflation/Deflation 87

Real GDP 87

International Monetary Considerations 88

Pretest 89

Chapter 6

Mutual Funds 93

Investment Company Philosophy 93

Types of Investment Companies 94

Open-End vs. Closed-End Funds 95

Diversified vs. Nondiversified 96

Investment Company Registration 97

Investment Company Components 99

Mutual Fund Distribution 101

Selling Group Member 101

Distribution of No-Load Mutual Fund Shares 102

Distribution of Mutual Fund Shares 102

Mutual Fund Prospectus 102

Characteristics of Open-End Mutual Fund Shares 104

Mutual Fund Investment Objectives 105

Other Types of Funds 106

Bond Funds 107

Valuing Mutual Fund Shares 109

Changes in the NAV 110

Sales Charges 111

12B-1 Fees 113

Calculating a Mutual Fund’s Sales Charge Percentage 113

Finding the Public Offering Price 114

Sales Charge Reductions 114

Breakpoint Schedule 115

Letter of Intent 115

Backdating a Letter of Intent 116

Breakpoint Sales 116

Rights of Accumulation 116

Automatic Reinvestment of Distributions 117

Other Mutual Fund Features 117

Cost Base of Multiple Purchases 121

Purchasing Mutual Fund Shares 122

Sales Charges 125

45-Day Free Look 126

Withdrawal Plans 126

Recommending Mutual Funds 127

Structured Retail Products/SRPs 128

Pretest 129

Chapter 7 Variable Annuities and Life Insurance 135

Annuities 135

Equity Indexed Annuity 138

Recommending Variable Annuities 139

Annuity Purchase Options 140

Accumulation Units 141

Annuity Units 141

Annuity Payout Options 142

Factors Affecting the Size of the Annuity Payment 143

The Assumed Interest Rate (AIR) 143

Taxation 144

Types of Withdrawals 144

Annuitizing the Contract 145

Expenses and Guarantees 145

Other Charges 146

Life Insurance 147

Premiums and Death Benefits 149

Assumed Interest Rate 150

Variable Policy Features 151

Tax Implications of Life Insurance 151

Pretest 153

Chapter 8 Retirement Plans 157

Individual Plans 157

Individual Retirement Accounts (IRAs) 158

Traditional IRAs 158

Roth IRAs 159

Simplified Employee Pension IRA (SEP IRA) 160

Death of an IRA Owner 162

Educational IRA/Coverdell IRA 162

529 PLANS 163

Tax-Sheltered Annuities (TSAs)/Tax-Deferred Accounts (TDAs) 164

Corporate Plans 166

Rolling Over a Pension Plan 169

Employee Retirement Income Security Act of 1974 (ERISA) 169

ERISA 404C Safe Harbor 171

Department of Labor Fiduciary Rules 171

Health Savings Accounts 172

Pretest 173

Chapter 9 Customer Accounts 177

Holding Securities 179

Mailing Instructions 180

Types of Accounts 181

Commingling Customer’s Pledged Securities 191

Wrap Accounts 191

Regulation S-P 191

Pretest 193

Chapter 10 Customer Recommendations, Professional Conduct, and Ta xation 197

Professional Conduct in the Securities Industry 198

Fair Dealings with Customers 198

Periodic Payment Plans 203

Mutual Fund Current Yield 203

Information Obtained from an Issuer 203

Disclosure of Client Information 204

Borrowing and Lending Money 204

Gift Rule 204

Outside Employment 205

Private Securities Transactions 205

Customer Complaints 205

Investor Information 206

NYSE/FINRA Know Your Customer 206

Investment Objectives 207

Risk vs. Reward 209

Alpha 211

Beta 211

Products Made Available through Member Firms 211

Recommendations through Social Media 212

Tax Structure 214

Investment Taxation 214

Calculating Gains and Losses 214

Cost Base of Multiple Purchases 215

Deducting Capital Losses 216

Wash Sales 216

Taxation of Interest income 217

Inherited Securities 217

Donating Securities to Charity 218

Gift Taxes 218

Estate Taxes 218

Withholding Tax 218

Corporate Dividend Exclusion 219

Alternative Minimum Tax (AMT) 219

Taxes on Foreign Securities 219

Pretest 221

Chapter 11 Securities Industry Rules and Regulations 225

The Securities Exchange Act of 1934 225

The Securities and Exchange Commission (SEC) 226

Extension of Credit 227

The National Association of Securities Dealers (NASD) 227

Becoming a Member of FINRA 229

Hiring New Employees 230

Disciplinary Actions Against a Registered Representative 231

Resignation of a Registered Representative 232

Continuing Education 232

Firm Element Continuing Education 233

Regulatory Element 233

Termination for Cause 234

Retiring Representatives/Continuing Commissions 234

State Registration 234

Registration Exemptions 235

Persons Ineligible to Register 235

Communications with the Public 235

FINRA Rule 2210 Communications with the Public 236

Broker Dealer Websites 239

Blind Recruiting Ads 239

Generic Advertising 240

Tombstone Ads 240

Testimonials 241

Free Services 241

Misleading Communication with the Public 241

Securities Investor Protection Corporation Act of 1970 241

Net Capital Requirement 242

Customer Coverage 242

Fidelity Bond 243

The Insider Trading & Securities Fraud Enforcement Act of 1988 243

Firewall 244

Telemarketing Rules 244

Do Not Call List Exemptions 245

The Role of the Principal 245

Violations and Complaints 246

Resolution of Allegations 246

Minor Rule Violation 246

Code of Arbitration 247

The Arbitration Process 247

Mediation 249

Currency Transactions 249

The Patriot Act 250

U.S. Accounts 251

Foreign Accounts 251

Identity Theft 252

Annual Compliance Review 252

Business Continuity Plan 252

Sarbanes-Oxley Act 253

The Uniform Securities Act 254

Pretest 257

Answer Keys 263

Glossary of Exam Terms 273

Index 339

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